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CA Final · Advanced Financial Management · Financial Policy and Corporate Strategy

Which of the following best describes the primary objective of financial policy within a firm's corporate strategy, as taught in the Advanced Financial Management syllabus?

Financial policy aims at the optimal procurement and effective utilisation of funds so that the firm's strategic goals, ultimately shareholder wealth maximisation, are achieved. It is not about short-term profit alone, reducing shareholders, or avoiding debt altogether.

  1. AEnsuring optimal procurement and effective utilisation of funds so that the firm's strategic goals are metCorrect
  2. BMaximising current year accounting profit irrespective of risk
  3. CMinimising the number of shareholders to retain control
  4. DEliminating all debt from the capital structure

Explanation

Financial policy links strategy to finance by ensuring funds are procured at optimal cost and used effectively to achieve strategic objectives such as wealth maximisation. Maximising current profit ignores risk and time value, and eliminating debt is not an objective in itself.

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